Just around the corner from where I live in North East London is Stoke Newington Church Street. Those familiar with the area will tell you it is a picturesque street where cool young parents pushing buggies mingle with trendy hipsters, both wandering in and out of the rows of boutique shops, nice restaurants and the odd pub.
Apart from Clissold Park at one end and the tranquillity of Abney Park Cemetry nearby, a big part of the street’s appeal, and what it prides itself on, is the abundance of independent retailers, each specialising in one thing, offering a bespoke service to customers.
A few years ago before I moved to the area, a branch of Nando’s cropped up in the street. This caused an uproar among local residents who no doubt felt threatened that a big chain restaurant would sweep in and ruin the tranquil balance afforded by the boutique outlets offering the Stoke Newington faithful overpriced children’s wear, organic quinoa and craft beer.
Despite protestations, the chicken restaurant was given the go ahead and since then there has been another battle raging between residents and developers over adding a Sainsbury’s to the street. Needless to say this has gone down like a lead balloon among residents and local activists, some of whom have described it as “the most unwanted scheme in Stoke Newington for a generation”.
The reason I mention this the boutique shop concept serves as a nice analogy for selecting investment managers. I had an interesting conversation with Northill Capital founder Jon Little this week about the selection criteria he looks for when choosing asset managers to own stakes in. Among these were that the firm only owns asset managers for a minimum 10-year term and only those who specialise in one product and know when the time is right to cap funds. The thinking goes that asset management is not better when it gets bigger and there should be a focus on capacity rather than growth when it comes to funds. “People get obsessed with growing,” he said. “There is a right size for each manager.”
Indeed, when asset managers grow too quickly there is a risk they become unwieldy, the culture breaks down, accountability becomes unclear, good ideas get overlooked and they lose the edge which made the firm successful in the first place. For example, how does the CIO at an asset management firm spread their time across asset classes? Diversifying into too many products also runs the risk of no longer delivering a message of confidence to clients – ‘Jack of all trades, master of none’ springs to mind.
A lot of pension funds could do with remembering this when they make their asset allocation decisions. This seems particularly pertinent in light of the recent proposals to change the LGPS investment approach so that listed equities are invested in on a purely passive basis. Several industry experts have said to me there is a place for active management but if it is to be done it needs to be all or nothing, that is to say wholehearted active management where ‘active’ managers have real conviction in stocks and not just hug benchmarks.
This could lead to proliferation of core/passive approaches with a ‘core’ slug of passive equity with a ‘satellite’ of active which will see investors becoming more discerning about exactly which active approach they take in order to get the best value.
Growth is good in many situations and there are always exceptions to the rule. Of course the Blackrocks and UBSs of this world are the size they are for a reason and have delivered positive returns to clients for many years and will continue to do so; just as the big supermarket chains offer affordable groceries to millions of satisfied households every year.
Going back to Church Street, there is in fact a Whole Foods store, which is technically a chain, and more recently a branch of well-known estate agent Foxtons has cropped up. I just hope like a good active manager, Hackney Council knows when to say enough is enough and not let it turn into another generic high street.
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